For decades, it was the centrepiece of an east London housing estate and was known affectionately as Old Flo. But the towering Henry Moore sculpture, Draped Seated Woman, created for public display, is now likely to end up in an auction room with a £20m price tag to raise much-needed funds for Tower Hamlets, which is the site of some of the worst deprivation in Britain.

At a cabinet meeting, the council took the decision that the sale of the massive bronze, almost three metres tall and weighing 1.6 tonnes, which has not been on display in London for 15 years, "should be explored". The money, it has been suggested, could be spent on affordable housing, education and community projects.

The mayor of Tower Hamlets, Lutfur Rahman said he regretted the decision, but that it was forced on the council given the £100m budget cuts it is having to make. The council has also raised the fear that the sculpture, if it were brought back to the capital, could be stolen by metal thieves. Council officers complained that the sculpture is now so valuable it is virtually uninsurable.

The Henry Moore Foundation, based in the artist's old home at Perry Green in Hertfordshire, has itself been hit by metal thieves, and understands the council's dilemma. "We are familiar with the challenges of displaying Moore's work outdoors. We do therefore have sympathy with Tower Hamlets' position, although we think it would be very sad if this sculpture were lost to public display," director Richard Calvocoressi said.

The sculpture was bought by the old London county council in 1962 for £6,000. It was a bargain even then but Moore, a lifelong socialist who took a keen interest in public art and where his works were sited, wanted it to be seen in a poor area. So for 35 years it became the surprising centrepiece of the Stifford Estate, overshadowed by tower blocks. Ownership passed to the Greater London council and then to Tower Hamlets when the GLC was abolished. Due to concerns about vandalism the sculpture was loaned to the Yorkshire Sculpture Park, 200 miles away.

The other proposal was loaning it to Canary Wharf, where the sculpture would have been on public display among squares and terraces already studded with art works, but on private land. The proposal made clear that such a loan would only be "for a period of time after which its future be reconsidered".

It had been suggested it could sit in Victoria Park, in Tower Hamlets, which was recently expensively restored with lottery money, but the council's officers advised against that because there was no maintenance budget. Rahman said: "We are faced with a stark choice in these times of recession."

The future of many public sculptures has been threatened by the soaring price of scrap metal, which has led to a spate of art thefts, including a major work by Barbara Hepworth sawn off its plinth in Dulwich Park, south London, last year. Thieves who attacked the Henry Moore Foundation took a monumental reclining figure in 2005 which has never been seen again and a bronze sundial last summer, which was recovered by police after the theft was publicised on BBC Crimewatch.